At long last, Moody’s sees newspapers stabilizing


Revenues are still declining, but the rate of decline has slowed for US newspapers. With major cost-cuts already in place, Moody’s Investors Service sees earnings gains for newspapers and has labeled the sector outlook “stable” – at least in the short term.

“The US newspaper industry’s outlook remains stable based on Moody’s view that revenue declines will moderate considerably in 2010-11, as the US economy gains strength and advertising spending begins a cyclical recovery,” said the ratings agency in a new report.

Overall, Moody’s said, newspaper advertising revenues are on track to decline 5% to 10% in 2010, after tumbling 22% last year. For 2011, Moody’s sees a range of minus 3% to plus 2% for industry revenues.

“Our 2010-2011 forecasts assume continued improvement in nominal US GDP growth,” said John Puchalla, a Vice-President and Senior Credit Officer at Moody’s. “The stable outlook is also supported by expectations that operating leverage from aggressive cost cuts will lift earnings for the next 12 to 18 months.”

The cyclical snapback in advertising could subside in 2012, Moody’s warned, shifting the stable outlook back to negative as a return to the longer-term trend approaches.

However in the short term, growth in the US economy, which largely dictates the level of ad spending, will abet ad spending by businesses that scaled back during the recession. The US real gross domestic product is on track to grow 2.5% to 3.5% in 2010 and in 2011, after falling 2.4% last year, according to Moody’s economists.

But the strong earnings gains for newspapers expected in the first half of 2010 will slow in the second half as the tailwind from last year’s drop in newsprint prices subsides, the aggressive cost cuts of 2009 are fully realized, and temporary cost actions like job furloughs and cuts in retirement benefits and incentive compensation are restored, the report said.

Although most cost reductions are permanent and will create some near-term operating leverage, Moody’s said newspapers are likely to continue losing advertising share to other media over the long term. The shift away from print ads to Web ads and competition from a wide variety of traditional media such as television, radio, outdoor billboards and theaters that are aggressively pursuing print advertisers is creating pricing pressure, resulting in newspaper ad revenues that will remain below pre-recession levels, Moody’s said.

The full report on newspapers, “Revenues Set to Stabilize in 2010-11, But Long-Term Outlook Is Still Negative,” is available at